Getting the best out of FBR reforms

The government’s decision to separate the Federal Bureau of Revenue’s (FBR) policy from its operation carries far-reaching implications for the country’s tax machinery. Limiting the role of FBR to tax collection and execution of the policy is in tune with the recommendations of businessmen. Framing the policy is no longer the responsibility of the FBR, a job that is best left to the Tax Policy Board among whose members will be the ministers of finance and commerce in addition to economists. Of course, the PTI had little trouble endorsing the plan since it was already a part of its vision.

There seems to be a broader acceptance of the need for FBR reforms than we have ever seen before. The ruling party appears confident that the Tax Policy Board will succeed in bringing a greater sense of transparency and ensure a higher level of tax compliance in a country like Pakistan. Vast improvement in these two spheres is compulsory if Pakistan is to raise and divert sufficient resources to meet the basic needs of its people. It is estimated that the FBR collects 82% of its total revenue in indirect taxes, and a mere 18% of that in direct taxes.

The PTI government is aiming no doubt to shun regressive indirect taxation and embrace a more equitable tax policy. Such a policy would be a departure from the PML-N playbook and its swift implementation as demanding as it may be — could turn the situation around.

If carried out smartly, the move could go a long way towards reviving the economy and reducing debt dependence. Its implementation, however, will resemble a rare mountaineering feat. Nothing illustrates that better than last year’s tax stats: less than 0.61% of the population filed tax returns in 2017 whereas revenue collection has never strayed far from the 10% mark. Overhauling the tax system is vital for the country’s governance and welfare. We cannot afford any more hits and misses.

Published in The Express Tribune, November 10^th, 2018.

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